OC Realty Blog

Mortgage rates increased for the fifth consecutive week, with the average
30-year fixed mortgage rate rising to the highest point since August,
according to Bankrate.com’s weekly national survey of large lenders.

The average 30-year fixed mortgage rate is now 6.47 percent and has an
average of 0.26 discount and origination points.

The average 15-year fixed rate mortgage, popular for refinancing, increased by a similar amount, to 6.21 percent. With larger loans, the average jumbo 30-year fixed rate climbed to 6.68 percent. On adjustable rate mortgages, the average one-year ARM nudged higher to 6.09 percent while the 5/1 ARM jumped up to 6.37 percent. 
(Click Image To See Full Graph)

“Mortgage rates often show short spurts of volatility and prolonged periods of little movement,” Bankrate notes in its survey report. “Mortgage rates had been confined to a narrow range of approximately one-third of a percentage point for nearly seven months - including weeks on end with virtually no movement. But they broke out of that range with this week’s move, as hopes for a Fed interest rate cut continue to wane.”

Fixed mortgage rates have increased nearly one-third percentage point since mid-March. At the time, the average 30-year fixed mortgage rate dipped to 6.16 percent, meaning that a $165,000 loan would have carried a monthly payment of $1,006.30. With the average 30-year fixed rate now 6.47 percent, the same loan originated today would carry a monthly payment of $1,039.66.

Fixed mortgage rates still remain a compelling refinancing alternative for
adjustable rate borrowers facing sharp payment adjustments.

Bankrate’s national weekly mortgage survey is conducted every Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

- REALTOR® Magazine Online

Rates obtained from our local lender, First Capital.

First, the good news: interest only loans increase house affordability by 20 percent. If you qualify for a $250,000 loan, you now can get $300,000; $300,000 becomes $360,000; and $400,000 becomes $480,000.  In other words, you can qualify for a more expensive home than you would with a traditional mortgage.  And the payments are dramatically different.  On a five-year interest-only loan at 3.875%, your payment is $1,615.  On a five-year hybrid at 3.750%, your payment jumps to $2,316. And on a 30-year fixed at 5.750%, your payment $2,918.  Quite a difference there.

How interest-only loans work: Interest only loans do not prohibit you from paying down the principal balance.  Most are available only with adjustable rate mortgages.  Most are five, seven or ten year interest-only periods, where the rate is fixed.  After the initial period, the rate can rise up to six percentage points.  For instance, a 5/1 ARM rate is fixed for five years and the i/o may only be for five years, and the next 25 would be traditional principal plus interest-greatly increasing your payment.  After the initial interest-only period, the loan becomes a fully amortized 30-year mortgage loan with no pre-payment penalty.

Now for the (potentially) bad news.  The payment differences break down as follows over the life of a five-year interest-only ARM:  Years one through five at 3.875%, your payment is $1,615.  Years six through eight at 6.875%, your payment is $2,864.  Years eight through ten at 9.875%, your payment is $4,114.  Years 10 through 30 at 9.875%, your payment is $4,783.  This last jump is due to the fact that during the last 20 years of the loan, the principal is spread out over 20 years as opposed to the traditional 30.

You may want an interest only loan if you:  Are disciplined with money;  Are a risk taker;  Aren’t taking on more than you can handle comfortably;  Expect your income to rise sharply in the next five years;  Have an irregular income (like commissioned sales) so that the lower payment is manageable during lean periods and when the money is coming in can pay down the principal;  Are content to let rising markets build your equity for you;  Are confident that home prices will continue to rise.

You don’t want an interest only loan if you:  Have a lot of consumer debt you can’t get a handle on;  Plan on being in your house longer than the interest-only period;  Are undisciplined with finances;  Are borrowing a small amount;  Plan on spending the extra cash on “discretionary” items;  Plan to sell or refinance before the interest-only period ends;  Want to lock in today’s low interest rates.

If you live in or are moving to Orange County California and want to find out which loan option is best for you, just call or email me or visit my mortgage broker’s website at http://www.ocloanteam.com/Home

Deciding how much house you can afford is a personal decision.Many factors come into play.How much can I borrow?  How much can I put toward my down payment?  What size monthly payment can I afford? 

There are no black and white answers to these questions.  Its a matter of give and take.  If you plan on a 30 year mortgage, you can probably make a lower down payment (or perhaps no down payment at all) and still manage the monthly payments.  If, on the other hand, you plan on a 15 year mortgage, youll probably want to make a larger down payment to keep your monthly payments in line with what you can afford. 

How large a down payment can I make?

Many buyers look at their cash on hand as their only source for their down payment.  This simply is not the case.  One way to fund or partially fund a down payment is by using a gift.   Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home. 

There are also down payment assistance charities that can help you.  And, of course, if you are selling a home, the equity youve built up can be applied to your down payment.

But these are not your only options.  We can help you explore all your down payment options, including low down payment and 100% mortgage financing options that might be right for you. 

What size monthly payment can I afford?

When determining what size monthly payment you can afford, youll want to consider what other monthly expenses you have.   Tangible expenses such as car payments, day care and utility bills, all play a role in how large a monthly payment you can afford. 

There are also the intangible expenses or lifestyle expenses that youll want to consider.  Things such as dining out, travel and when you buy your next car can effect how much you can afford.  Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment? 

How much can I borrow?

This is a question you’ll want to get answered before you begin your home search.   This is something that I can help you with.  Here is my loan broker’s http://www.ocloanteam.com/MortgageCalculators to help you see how your down payment, monthly payment and the amount you borrow are all interrelated. 

I can answer any questions you may have about the mortgage process.  But the best way I can help is by getting you pre-qualified for a mortgage loan.  To get started, simply complete call or email me.  I look forward to helping you buy your dream home.

I should say that “working with a mortgage broker” is the first way!  When you let them help you find the loan that’s right for you, you truly are taking advantage of some of the area’s best technology and expertise to get you a loan decision and funding on your loan quickly.

But here are five “other” ways you can speed up the process of getting a mortgage loan:

Identify your property price range and strengthen your bargaining power by understanding the difference between these two tools. 

While a pre-qualification provides you and with a “ballpark” estimate of your power, it’s only as good as the information provided.  A pre-approval is backed by verification of your income, credit, and asset information.  It allows you to know what homes you can truly afford and greatly strengthens your negotiating power, especially in multiple offer situations. 

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When you’re ready to write up that purchase offer, most sellers today require a pre-approval letter from your lender be submitted with the offer so they know they are receiving an offer from a qualified buyer.  If there happens to be multiple offers, you stand a stronger chance of getting the home if you have the pre-approval letter and the other party does not.

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If you’re a real estate buyer in the South Orange County areas of Laguna Niguel, Aliso Viejo, Laguna Hills, Mission Viejo, Lake Forest, Dana Point, San Clemente, San Juan Capistrano, Laguna Beach, Corona Del Mar or Newport Beach, call or email me for more information on the pre-approval process.

What Is It?  A type of financing where the buyer or seller pays extra points (often called discount points) in return for a lower interest rate.

The low-down on buydowns is that they are commonly used to make qualifying for a loan easier since they lower a loan’s interest rate.  Most common is the temporary buydown where you prepay interest in exchange for a lower rate on the first 2-3 years of a loan.  Often the builder, seller or lender, all who want to make the housing more attractive to buyers, will pay for the buydown.  Also, the lower starting rate makes it easier for the buyer to qualify for the loan.

Example: How do you do a temporary 3-2-1 buydown for a $250,000 fixed rate loan?

Step 1 (Chart shows lower payments for the Buyer)

Step 2 (Chart shows buydown cost to builder, lender or seller)

This mortgage option is a win-win situation for both Buyers & Sellers.  The Buyer gets lower payments for the first two years, which can enable them to get into a home which they might not using a conventional mortgage. . . and although the Seller or Lender has some out of pocket costs at closing, the house gets sold, and this cost is usually much lower than taking a price reduction.

For more information on this type of loan, call me at 949-244-0719 so I can put you in contact with our local lender in the South Orange County California area.

With the recent subprime shake-up, yes, some 100% financing is disappearing. 

• What is a subprime loan?  Pioneered in Orange County California, this lending option targets borrowers with marginal credit scores.
• Why the shakeup?  Subprime borrowers had trouble making payments, consequently, the financial backers of these lenders decided to pull the plug on future mortgage loans.

It’s not as bad as it seems, though.  Only 20% of all U.S. mortgages are subprime.  Only 1 in 8 of that 20% default, which equates to a 2.5% default rate.  Since many of these loans were 100% financed, that whole area of the mortgage industry is being closely scrutinized, with many lender dropping 100% financed loan options.

There is a light at the end of the tunnel.  If you have good credit scores and/or can provide full documentation for your loan, some lenders are still offering 100% financing.  One of those lenders is First Capital, located in Orange County California.  For more information on 100% financing or other loan options, contact my local branch in Laguna Niguel by calling 949-249-6150 or visit their website at www.OCLoanTeam.com